Market rattled by Carpetright profits slump

Retailer Carpetright shook the City yesterday with plunging profits and put investors on notice that full-year ­earnings will be towards the bottom of expectations in 'volatile' ­trading.

A Carpetright store in London. Picture: Wikimedia Commons
A Carpetright store in London. Picture: Wikimedia Commons

The group said consumer confidence remained “fragile” and competition intense as it posted statutory interim pre-tax profits of £300,000 for the six months to 28 October – crashing down from £4 million a year earlier.

On an underlying basis, stripping out exceptional items, Carpetright’s profits more than halved to £2.1m from £5.1m a year ago.

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Carpetright, whose fortunes are closely tied to the strength of the housing market as well as the wider economy, said a testing first half had seen operating profits hit by a clearance sale to shift discontinued bed lines, as well as higher store payroll costs.

The business said like-for-like UK sales rose 0.7 per cent, a bounceback from a near-
3 per cent fall in the same period last year, but that discounting in its outlets in the Netherlands and Belgium had been unsuccessful.

Same-floorspace UK sales lifted 1.4 per cent in an “encouraging start” to the ­second half, but the company cautioned that consumers were caught in an income squeeze.

Economists have said UK consumers are facing rising inflation and ongoing uncertainty in the wider economy.

Wilf Walsh, chief executive of Carpetright, said: “When wage inflation fails to keep pace with RPI [inflation] there has, at some stage, to be a ­tipping point when customers tighten their belts.

“As the Brexit divorce terms remain unclear, the consumer market has remained volatile and unpredictable, but whatever happens we believe we can maintain and indeed grow our share in the core flooring market.”

He added: “In light of the consumer outlook we are taking a more cautious view of the second half and now expect underlying profit before tax for the full year will be towards the bottom end of the current range of market expectations.”

Squeezed shoppers reined in Christmas travel plans and bought far fewer cars last month, setting the stage for the first fall in festive spending in five years, credit card company Visa said earlier this week.

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Carpetright-watcher Matthew McEachran, of broker N+1 Singer, commented in a note: “Whilst the drag in the UK was in line with expectations, relating mainly from the Beds re-ranging programme which was accelerated and completed in Q2, the ­European business dropped back to a small loss, and accounted for the £2m miss versus our H1 forecast.”

He said the profits warning was likely to lead to full-year earnings forecast downgrades of about 6 per cent. Before ­yesterday’s warning analysts had pencilled in profits of £13.8m to £16.5m for the full financial year.

Carpetright’s shares closed down nearly 6 per cent, or 11p, at 174p.